Silicon Valley Bank Says No To Bitcoin Businesses

Yesterday I had an encouraging 1 hour conversation with a representative at Silicon Valley Bank. Unfortunately I was told today that Silicon Valley Bank cannot open an account for any bitcoin business or merchant. Below is the word-for-word email response from SVB.

SVB Response

 

I’m not sure how we’re suppose to work together in the future without a bank account, but that’s the situation. I thought SVB was a bank that supports innovation and startups, even bitcoin startups. Apparently not! They support innovation, but not Bitcoin– quite possibly the greatest innovation of our time. That’s a shame!

Perhaps it’s not their fault, as SVB seems to put blame on U.S. regulation. Western Union also took a hit today after their earnings report projected increased costs from regulatory pressures. It’s also possible banks now view bitcoin as more of a threat given it’s resiliency and the many advantages it offers over traditional banking and fiat currencies like the dollar.

I suspect SVB along with other U.S. banks and government regulators are over-reacting to Bitcoin and fighting it will do them no good. However, this does highlight the challenges that many legitimate bitcoin business and bitcoin merchants must deal with currently.

Bitcoin is truly a better form of money in every way, but U.S. banks and government regulators shunning bitcoin business stifles innovation. It’s a position both will eventually regret. How many U.S. bitcoin business will now move to other countries, or at least bank there? This is yet another way the U.S. drives innovation outside its borders and as an American this is a sad thing to witness.

Are we in the fighting phase now?

“First they ignore you, then they laugh at you, then they fight you, then you win.”

– Mahatma Gandhi

As some of you may recognize, the quote above was cited by the Winklevoss twins in their keynote address at the San Jose Bitcoin conference earlier this year. I believe this quote rings true now more than ever given my recent experience in trying to establish a bank account. I think we may be in the fighting phase of bitcoin adoption and acceptance… at least in the United States!

Even though Bitcorati is a purely information/content based company (with no involvement in money transmission or money services), we are unable to establish a bank account on the grounds that we accept bitcoins as payment. Initially (while our conversion necessity is high), we will need to convert a majority of our bitcoins in to dollars. Over time there would less of a need to convert and thus less of a need for traditional banking. Perhaps this is another reason why the banks don’t like bitcoin or bitcoin businesses.

If you’re a bitcoin business or merchant that accepts bitcoin please share your story in the comments below. Who do you currently bank with and what has been your experienced?

About The Author

Profile photo of Ryan Charleston

Ryan is a tech professional with experience in marketing and advertising, research and analytics, business strategy and web development. He left his full-time job at eBay to focus on Bitcoins and his role as founder and CEO of Bitcorati.com and other Bitcoin related projects. Ryan has a strong background in finance and economics from his days as a commercial real estate analyst. His interest in Bitcoins began in September 2012 and has been closely researching and investing in the digital currency ever since!

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53 Comments

  1. Pingback: SVB Financial Group Places Cryptic Bitcoin Message in Annual Report - Signals News

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  32. Jack Gavigan

    This is a perfectly rational decision by SVB.

    FinCEN has issued guidance [1] which states that an “exchanger” (i.e. “a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency”) who “buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations”.

    Banks have been fined billions of dollars for failing to comply with anti-money laundering (AML) regulations and there is a cost associated with doing the research, getting the legal opinions and establishing the business processes to ensure that SVB is not inadvertently facilitating money laundering by opening accounts for entities that exchange virtual currencies for USD.

    Either (a) SVB has not yet finished that process or (b) they have taken the decision that, for the time being (as indicated by their use of the phrase “At this time”), the risks/costs associated with opening accounts for entities that exchange virtual currencies for USD outweigh the benefits that would accrue from doing so. As a result, they have implemented an internal rule that they will not “initiate any new relationships or accounts for companies that receive BitCoin for any form of payment”.

    This is a perfectly understandable approach. They’re not “fighting” Bitcoin, it doesn’t mean that they don’t support innovation and it doesn’t mean that they “don’t like bitcoin or bitcoin businesses”. It merely means that they’re being sensible and rational.

    Be patient. It takes time for financial institutions to become comfortable with something like Bitcoin that butts up against AML, where the potential costs of non-compliance are measured in the billions.

    [1]: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies: http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

    1. Ryan Charleston

      It’s actually quite irrational and shortsighted. They didn’t take the time to really understand my business. My business is not a money transmitter and not a money services business. They’re just blanketing all bitcoin related business as being high risk, when only some of them are- like exchanges! My only interaction with bitcoin would be in accepting it as payment for advertising or subscriptions. There are 10,000+ merchants out there using Bitpay to convert bitcoin into dollars automatically with no problems. Why can’t I do the same? Does having this happen automatically and/or having it go through a bitcoin merchant processing system make it alright for the banks?

    2. Fellow Traveler

      Be patient. Soon the old dinosaurs will collapse under their own weight as they are eclipsed by the digital currency revolution. Soon all their regulations will be irrelevant.

  33. Jack Gavigan

    This is a perfectly rational decision by SVB.

    FinCEN has issued guidance [1] which states that an “exchanger” (i.e. “a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency”) who “buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations”.

    Banks have been fined billions of dollars for failing to comply with anti-money laundering (AML) regulations and there is a cost associated with doing the research, getting the legal opinions and establishing the business processes to ensure that SVB is not inadvertently facilitating money laundering by opening accounts for entities that exchange virtual currencies for USD.

    Either (a) SVB has not yet finished that process or (b) they have taken the decision that, for the time being (as indicated by their use of the phrase “At this time”), the risks/costs associated with opening accounts for entities that exchange virtual currencies for USD outweigh the benefits that would accrue from doing so. As a result, they have implemented an internal rule that they will not “initiate any new relationships or accounts for companies that receive BitCoin for any form of payment”.

    This is a perfectly understandable approach. They’re not “fighting” Bitcoin, it doesn’t mean that they don’t support innovation and it doesn’t mean that they “don’t like bitcoin or bitcoin businesses”. It merely means that they’re being sensible and rational.

    Be patient. It takes time for financial institutions to become comfortable with something like Bitcoin that butts up against AML, where the potential costs of non-compliance are measured in the billions.

    [1]: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies: http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

    1. Ryan Charleston

      It’s actually quite irrational and shortsighted. They didn’t take the time to really understand my business. My business is not a money transmitter and not a money services business. They’re just blanketing all bitcoin related business as being high risk, when only some of them are- like exchanges! My only interaction with bitcoin would be in accepting it as payment for advertising or subscriptions. There are 10,000+ merchants out there using Bitpay to convert bitcoin into dollars automatically with no problems. Why can’t I do the same? Does having this happen automatically and/or having it go through a bitcoin merchant processing system make it alright for the banks?

    2. Fellow Traveler

      Be patient. Soon the old dinosaurs will collapse under their own weight as they are eclipsed by the digital currency revolution. Soon all their regulations will be irrelevant.

  34. Pingback: Silicon Valley Bank Says No To Bitcoin Businesses

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  36. DownWithTyranny

    Great article! The quote by Gandhi is one of my favorites. There are calls all over the internet to regulate and centralize bitcoin today.. This will be laughable. I hope they know we can innovate faster than they can write the law for it. They will have to make it illegal to use the internet other than for facebook and google applications to stop this wave of innovation;)

    I could see them slapping super corrupt front end on Bitcoin. Basically the code would look like this:

    if(!IsOnePercent(user))
    {
    StealFiftyPercent();
    SlowDownConnection();
    if(!IsOnePercentAddress(DestinationAddress))
    {
    DisplayErrorMessage(“Unauthorized recipient”);
    return;
    }

    }
    else
    {
    UpdateWithStolenCash();
    UseGoldenConnection();
    DisplayMessage(“Have a nice day!”);

    }

  37. DownWithTyranny

    Great article! The quote by Gandhi is one of my favorites. There are calls all over the internet to regulate and centralize bitcoin today.. This will be laughable. I hope they know we can innovate faster than they can write the law for it. They will have to make it illegal to use the internet other than for facebook and google applications to stop this wave of innovation;)

    I could see them slapping super corrupt front end on Bitcoin. Basically the code would look like this:

    if(!IsOnePercent(user))
    {
    StealFiftyPercent();
    SlowDownConnection();
    if(!IsOnePercentAddress(DestinationAddress))
    {
    DisplayErrorMessage(“Unauthorized recipient”);
    return;
    }

    }
    else
    {
    UpdateWithStolenCash();
    UseGoldenConnection();
    DisplayMessage(“Have a nice day!”);

    }

    1. Mirco Romanato

      Liberty Dollar, Liberty Reserve, Goldmoney were Napster in this.

      Bitcoin, at this time, is Gnutella after the first years of optimizations (P2P with optimizations).

      But with the reaction of the government and bank sector they are driving it directly in TOR/Freenet/BitTorrent territory.

      From my POV, they are abusing their power like the OPEC when increased too much the price of oil. It drove the development of fuel efficient cars. And even if the price came down later, the technology for fuel efficient cars stayed.

    1. Mirco Romanato

      Liberty Dollar, Liberty Reserve, Goldmoney were Napster in this.

      Bitcoin, at this time, is Gnutella after the first years of optimizations (P2P with optimizations).

      But with the reaction of the government and bank sector they are driving it directly in TOR/Freenet/BitTorrent territory.

      From my POV, they are abusing their power like the OPEC when increased too much the price of oil. It drove the development of fuel efficient cars. And even if the price came down later, the technology for fuel efficient cars stayed.

  38. Fellow Traveler

    The regulators are actually driving the development through these sorts of actions.

    This is Napster ==> Bittorrent all over again.

    The harsher they get, the more the technology will thrive.

  39. Fellow Traveler

    The regulators are actually driving the development through these sorts of actions.

    This is Napster ==> Bittorrent all over again.

    The harsher they get, the more the technology will thrive.

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